HIGHTECH ENGINEERS,MUMBAI vs. ACIT 19(1), MUMBAI

O R D E R Per G Manjunatha, AM : This appeal filed by the assessee is directed against the order of CIT(A)- 30, Mumbai dated 11-01-2016 and it pertains to AY 2010-11 2. The brief facts of the case are that the assessee in the business of civil construction, filed its return of income for the assessment year 2010-11 declaring total income of Rs.2,16,40,598. The case has been selected for scrutiny and accordingly notices u/s 143(2) and 142(1) were issued. In response to notices, the authorized representative of the assessee appeared from time to time and furnished the details, as called for. During the course of assessment proceedings, the AO noticed that the assessee has shown material purchases of Rs.18,19,62,880 from 109 parties. To ascertain the correctness of purchases claimed by the assessee, the AO called upon the assessee to furnish necessary details of purchases above Rs.1 lakh made from those parties.

During the course of assessment proceedings, in order to verify the genuineness of transaction of material purchases, information u/s 133(6) of the Act were called for from the parties. The notices issued u/s 133(6) in respect of 8 parties listed by the AO in his assessment order at paragraph 4 were returned unserved with remarks “no known” or “unclaimed”. Thereafter, the AR of the assessee was apprised of with the facts and asked to furnish new address of the parties and filed ledger copies of those parties for AYs 2009-10 TO 2010-11. The assessee has filed copy of ledger accounts, bills, delivery challans and proof of payment; however, failed to furnish new addresses of the parties from whom purchases were made. The AO further observed that the assessee has made purchases from 8 parties, who are listed as suspicious dealers involved in providing accommodation entries by the Maharashtra Sales-tax department. Based on the enquiries conducted during the course of scrutiny assessment proceedings and also on the basis of information received from Maharashtra Sales-tax department, the AO came to the conclusion that 8 parties were bogus in nature as the assessee has failed to prove the genuineness of purchases with necessary evidences.

The AO further observed that though the assessee has furnished bills and payment proof, failed to furnish further evidences to prove the genuineness of transactions in the backdrop of findings of Maharashtra Sales-tax department that the parties are involved in providing accommodation entries. Therefore, he opined that purchases from the above parties are bogus in nature and accordingly made additions of Rs.72,64,648 u/s 69C of the Income-tax Act, 1961.

According to the AO, notices issued u/as 133(6) were returned unserved with remark “not known” or “unclaimed”. Therefore, the AO opined that though the assessee has furnished certain evidences to justify purchases from above parties, failed to prove the genuineness of purchases in the backdrop of clear findings of Maharashtra Sales-tax department that the parties are involved in providing accommodation entries. It is the contention of the assessee that purchases from above parties are genuine in nature as its purchases are supported by valid purchase bills, delivery challans and payment for such purchases has been made through proper banking channels. The assessee further contended that additions cannot be made towards purchases merely on the basis of third party information ignoring the evidences filed to justify purchases. The assessee further contended before the lower authorities that the AO neither pointed out any error or discrepancy in the books of account nor did make out any case of sales made outside the books of account. In the absence of any finding as to incorrectness of books of account, addition cannot be made towards bogus purchases.

Therefore, we are of the considered view that addition cannot be made towards alleged bogus purchases only on the basis of information received from Maharashtra Sales-tax department. At the same time, it is also an undisputed fact that the notices issued u/s 133(6) were returned unserved with remark, “not known” or “unclaimed”. The assessee has failed to furnish correct addresses of the parties. Under these circumstances, it is very difficult to accept that the purchases from those parties are explained to the satisfaction of the AO. Under these facts and circumstances what needs to be taxed is only the profit element in such purchases but not the total purchases made from alleged bogus parties. This view has been further supported by the decision of Ahmedabad Tribunal in the case of Vijay Protiens Ltd (supra) wherein it was held that only profit element embedded in bogus purchases needs to be taxed. We further notice that the Hon’ble Gujarat High Court in the case of Bholanath Poly Fab Pvt Ltd 355 ITR 290 (Guj) observed that whether purchases themselves were to be taxed or whether parties from whom such purchases made were bogus is essentially a question of fact and the Tribunal having examined the evidence on record concluded that the assessee did purchase cloth and sold goods, the entire purchase would not be subjected to tax. In yet another case, the Hon’ble Gujarat High Court in the case of Simit P Sheth (supra) has held that no uniform yardstick can be applied for estimation of net profit which is dependent upon facts and circumstances of each case. The co-ordinate bench of ITAT, Mumbai in several cases has taken a view that only the profit element embedded in bogus purchases needs to be taxed. Accordingly, estimated net profit of 12.5% on bogus purchases.

Therefore, considering the facts and circumstances of the case and also being consistent with the view taken by the co-ordinate bench, we are of the view that only profit element embedded in purchases needs to be taxed. Hence, we direct the AO to estimate net profit of 12.5% on total purchases made from the above parties. 6. In the result, appeal filed by the assessee is partly allowed.

Order pronounced in the open court on _____ October, 2017.